Using Katsuyama's IEX as a SMART router

[Daal]

The other day he was on CNBC and said that traders and investors could send marketable orders to his exchange and it would get re-routed to other places through their proprietary routing system
http://video.cnbc.com/gallery/?video=3000279845&play=1

This makes me think one way to use IEX is as a SMART router, if you want to buy or sell a ton of stock and you are concerned your brokerage SMART router is not using Thor or that they are tipping off your intentions to dark pool HFTs before hitting the public markets (or prioritizing rebates instead of probability of a fill) you might be better off sending an IEX re-routable marketable order instead of using your brokerage system.

It would be interesting to run some tests on this, like IB SMART vs IEX router, Barclays SMART vs IEX, etc. If enough people test this and it comes out that it works, I might include in the next edition of my book.

There are some additional costs with the rerouting but its not a lot, according to their site its "Away Venue Execution Cost to IEX plus $0.0001"

I assume they license Thor (since there is a patent IIRC) and don't tip off folks first.

Anyways, just some food for thought here.

 

[Occam]

IEX allows for queue jumping -- my guess is that that's the "carrot" they used to get major B/D's to support them. (Why would large B/D's support an exchange that promotes fairness, when, historically, a major source of their "trading" revenue has been to probabilistically skim their own customers? Apparent answer: IEX was never meant to be fair in the first place.)

Until IEX cleans up their act and ditches queue jumping, I would not be inclined to use them for anything.

 

[Daal]

IEX allows for queue jumping -- my guess is that that's the "carrot" they used to get major B/D's to support them. (Why would large B/D's support an exchange that promotes fairness, when, historically, a major source of their "trading" revenue has been to probabilistically skim their own customers? Apparent answer: IEX was never meant to be fair in the first place.)

Until IEX cleans up their act and ditches queue jumping, I would not be inclined to use them for anything.

Are you referring to broker priority? He answered why they do it in another CNBC clip from that same day. They make no money from it and its only 3% of their volume

 

[jtrader33]

This makes me think one way to use IEX is as a SMART router, if you want to buy or sell a ton of stock and you are concerned your brokerage SMART router is not using Thor or that they are tipping off your intentions to dark pool HFTs before hitting the public markets (or prioritizing rebates instead of probability of a fill) you might be better off sending an IEX re-routable marketable order instead of using your brokerage system.

It would be interesting to run some tests on this, like IB SMART vs IEX router, Barclays SMART vs IEX, etc. If enough people test this and it comes out that it works, I might include in the next edition of my book.

This is exactly what I've been trying to do. I have stats on 5000 trades from one model sent through IB's SMART router. I'm just waiting on IB to get the kinks worked out with the IEX direct routed orders, so that I can get a sample large enough to compare. I will share the results here.

Some discussion on this thread: http://elitetrader.com/vb/showthread.php?p=3974948&highlight=iex#post3974948

 

[Spearhead]

This makes me think one way to use IEX is as a SMART router, if you want to buy or sell a ton of stock and you are concerned your brokerage SMART router is not using Thor or that they are tipping off your intentions to dark pool HFTs before hitting the public markets (or prioritizing rebates instead of probability of a fill) you might be better off sending an IEX re-routable marketable order instead of using your brokerage system.

I've been using IEX in lieu of IB Smart as well. I haven't taken any specific measurements, but I believe I do get better fills in some cases. I'm often trading enough size that I'm taking all displayed liquidity, and I believe with IEX I'm generally able to do this, whereas with IB Smart, some displayed bids/offers sometimes gets pulled after I send the order, so I might get filled less than the displayed size. IB Smart is WAY better than Ameritrade/Etrade/Schwab though, so not seriously complaining about it. I don't know how I'd survive without IB actually.

I enter orders manually in TWS so pricing isn't an issue. I believe it can be an issue with API use.

 

[Daal]

I've been using IEX in lieu of IB Smart as well. I haven't taken any specific measurements, but I believe I do get better fills in some cases. I'm often trading enough size that I'm taking all displayed liquidity, and I believe with IEX I'm generally able to do this, whereas with IB Smart, some displayed bids/offers sometimes gets pulled after I send the order, so I might get filled less than the displayed size. IB Smart is WAY better than Ameritrade/Etrade/Schwab though, so not seriously complaining about it. I don't know how I'd survive without IB actually.

I enter orders manually in TWS so pricing isn't an issue. I believe it can be an issue with API use.

In the flash boys book they talk about how some dark pools will tip off HFTs about orders and how which dark pool that is doing that can change. IB hits the dark pools first before hitting the public markets, have you tested IB SMART Primary vs IB SMART? Have you noticed any difference?

 

[Spearhead]

In the flash boys book they talk about how some dark pools will tip off HFTs about orders and how which dark pool that is doing that can change. IB hits the dark pools first before hitting the public markets, have you tested IB SMART Primary vs IB SMART? Have you noticed any difference?

I use bundled pricing so I don't think I have SMART primary as an option. If that's not the case, I'm not sure how to enable it?

 

[Daal]

I use bundled pricing so I don't think I have SMART primary as an option. If that's not the case, I'm not sure how to enable it?

When you click on the bid or ask and the order line shows up, click on SMART, there should be an option for all the ECN/Exchange routes as well as the different SMART types

 

[Spearhead]

When you click on the bid or ask and the order line shows up, click on SMART, there should be an option for all the ECN/Exchange routes as well as the different SMART types

Yes, that would've been the first place I looked. On my TWS, all I see are:

ISLAND
SMART
ARCA
BATS
BEY
BYX
CHX
DRCTEDGE
EDGEA
IBDARK
IEX
ISE
ISLAND
LAVA
NSX
PSX
IBALGO
CSFBALGO
JEFFALGO

The reason I thought I might need unbundled pricing is from:
https://www.interactivebrokers.com/...ebook/configuretws/configure_smartrouting.htm

Under the "SMART Stock Routing Algorithms" section:
>>To change your pricing structure from bundled to unbundled and take advantage of this feature, log in to Account Management, and select Account Administration and then Pricing Structure from the left contents pane.

 

[Daal]

Yes, that would've been the first place I looked. On my TWS, all I see are:

ISLAND
SMART
ARCA
BATS
BEY
BYX
CHX
DRCTEDGE
EDGEA
IBDARK
IEX
ISE
ISLAND
LAVA
NSX
PSX
IBALGO
CSFBALGO
JEFFALGO

The reason I thought I might need unbundled pricing is from:
https://www.interactivebrokers.com/...ebook/configuretws/configure_smartrouting.htm

Under the "SMART Stock Routing Algorithms" section:
>>To change your pricing structure from bundled to unbundled and take advantage of this feature, log in to Account Management, and select Account Administration and then Pricing Structure from the left contents pane.

Yes, this might be the issue. You have lower costs with bundled?